Improving Government Support to the SMME Sector

Improving Government Support
to the SMME Sector
Saul Levin
Chief Director
Economic Development Department
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Where does South Africa Stand?
South Africa has legislation, a comprehensive policy
framework and architecture to support small
businesses with financial support, non-finance support
(training, advice, mentorship), procurement,
international linkages assistance, and technology
support.
South Africa also has an effective business environment
including company regulation, legal system, banking
sector, business infrastructure, private sector support
services (e.g. accounting, HR, business consulting) etc.
Are we making the impact?
Questions of Duplication and lack of co-ordination?
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How do we compare?
• Estimate on SMME support (ex procurement) combined
National & National agencies: R3 billion; [included is sefa &
SEDA combined: +-R715 million allocation p.a. + sefa
R2billion for financing] (SA population: 50.5mil)
• Northern Ireland: Invest Northern Ireland +-R2billion (pop:
1.7 mil)
• UK: Growth Accelerator R2.4billion; Small Business bank
R12billion; Business Link R2billion; + mentorship
programmes, etc. (pop: 63 million)
• USA: SBA R14billion + R160 billion for finance programmes
(pop 311 mil)
• South Korea: Small and Medium Business Administration
R10.5billion + R30 billion for finance programmes (pop:
49.7 mil)
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Impact
• Context of limited resources:
• Are we getting the impact for what we spend
on Small Businesses?
• Advisory Committee established by Minister
Patel to make recommendations on the
impact of spending on small businesses in
South Africa
• Deeper understanding of who and how much
is being spent
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What are the challenges?
• Gem 2011 report summarises it well:
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Literacy levels
Skills gap
Crime (including crime against business)
Corruption
Health of the workforce
Labour market
Infrastructure
Large firm dominance
Low rates of entrepreneurship (given our level of development and
GDP) and government run entrepreneurship programmes not making
an impact.
“South Africa remains one of the more poorly-performing countries
with regards to entrepreneurial activity – despite the fact that the
country exhibits the factors which are conducive to entrepreneurial
ventures, including government policies and programmes aimed at
stimulating entrepreneurship.” (GEM 2011)
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Policy Framework
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National Development Plan
New Growth Path
Industrial Policy Action Plan (IPAP)
National Small Business Act
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National Development Plan
• Establishing common ground and a long term vision of
where the country needs to go
• Identifying objectives and setting actions to achieve
those long term objectives
• Responds to many of the challenges that inhibit the
SME sector: skills, economic infrastructure, costs of
doing business, reducing red tape and corruption,
labour market reforms, health care, a social safety net,
amongst others.
“In the short to medium term, most jobs are likely to be created in small,
often service-oriented businesses aimed at a market of larger firms and
households with income…Public policy can be supportive through
lowering barriers to entry, reducing regulatory red tape and providing an
entrepreneurial environment for business development. Significantly,
these firms are often intensive in mid- and low-skilled employment.”
(NDP 2012)
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New Growth Path (Oct 2010) – summary
• The legacy of inequality, access to resources, skills, residential patterns in our
country and the challenges that still reflect in our economy: e.g. mining and
agriculture shedding jobs; finance not creating jobs
• NGP discusses how to respond to these challenges and create the jobs that
are so critical for our country.
• NGP unpacks the sectors where we see potential to create jobs and where we
should concentrate our energies: Infrastructure, Green economy, social
economy, productive sectors (agric & agroprocessing; manufacturing;
minerals beneficiation); and spatial development (rural and in rest of Africa)
• NGP looks at the different drivers that must contribute to job creation;
included in these drivers is the importance of state agencies and
development finance institutions (and their resources)
• The New Growth Path articulates the need for us to achieve a common vision
as a society so that all of us – the public sector, the private sector, labour
unions and civil society - work together to achieve our goal of creating 5
million jobs by 2020.
It is a comprehensive response to the structural crises of poverty,
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unemployment and inequality in South Africa
Industrial Policy Action Plan 3
2012/13 – 2014/15
• IPAP updated to remain relevant and alignment with NGP
• Supports the growth of value adding sectors (the move away from
commodities) and industrialisation of the economy – employment
intensive industrialisation
• Interventions and sector support based on data and economic
analysis
• Alignment with SOEs including IDC for industrial development finance
• Supports the alignment of trade and competition policy with
industrial policy
• Identifies key sectors and value chains for support, including through
localisation
“IPAP has a particular role to play in dynamising employment and
growth in the economy through its focus on value-adding sectors that
embody a combination of relatively high employment and growth
multipliers” (IPAP3: 2012)
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Policy framework for support to
SMME sector
The Integrated Strategy on the Promotion of Entrepreneurship and
Small Enterprises identifies three pillars …
Strategic Pillar 1:
Strategic Pillar 2:
Increase supply
for financial and
non-financial
support services
Creating demand
for small enterprise
products and
services
Collaborative approaches;
Streamline resources from the
public sector and crowd-in private
sector resources
New Policy Directives;
•Public sector procurement
strategy as a lever for increased
demand
• BBBEE codes of good practice
as a lever for increased demand
Strategic Pillar 3:
Reduce small
enterprise regulatory
constraints
Establish a regulatory impact
assessment framework and
Business Environment monitoring
mechanism
Strategy identifies need for clarity, focus, coordination
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Pillar 1: Finance and Non-Finance
Support
• Finance: (1) Loans: SEFA, provincial and local agencies,
Banks & FIs; (2) 30 day payment campaign; (3) credit
information sharing initiative
• Non-Finance: Training, capacity building, INCUBATORS &
business premises, information, entrepreneurship
support
• GAPS:
• Not enough resources and funding
• Co-ordination across government
• Poor focus by size / sector / stage – creates bottlenecks & who gets
serviced
• Need for innovative finance products
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Pillar 2: Demand for goods and
services
• Opportunities: government procurement,
local content, private sector & value chains
(national government alone procures an
estimated R3.3 billion from SMMEs)
• Gap:
– Missed opportunities with set-asides / 10 product
requirement not implemented
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Pillar 3: Regulatory Constraints
• Constraints at both National and Local level
• National: Costs of compliance & time: RIA
requirements and review of legislation
• Local: By-laws: work done by dti & SALGA,
individual municipalities
• Gaps:
– Ongoing bottleneck that holds back businesses and
entrepreneurship
– Regulatory constraints not systematically addressed
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Recommendations from the dti SMME
Review
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Better co-ordination across government
Data gathering
Make it easier to access support from government
More business incubators – co-ordinated, appropriately run
and properly resourced with sector focus
Specific support to the manufacturing sector
A unified national mentorship programme
Improve the workings of the small claims court
Stimulate the ‘angel investor’ market and other venture
capital type investors
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Recommendations, cont
• Establish a national credit register
• Improve SMME finance agencies and direct lending
• Improve government payment (30 days) and encourage
private sector to do the same
• More information on the availability of finance for SMMEs in
SA
• Improved demand for SME goods and services
• Red tape reduction
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A period of consolidation
• At national: Merger of Khula and samaf to
create SEFA
• At provincial level: Limpopo, North West,
Western Cape: consolidation of provincial
agencies (or into national) underway
• Others …
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Merged small business financing entity SEFA
• President announced work on merger of SMME lenders in Feb
2011 SONA and decision taken to merge Khula, samaf and the
IDC small business financing into a single entity
• Entity established and launched on 23 April 2012: the Small
Enterprise Finance Agency (SEFA)
• Falls under the IDC and is recapitalised – R2billion over 3 years
• Focus is on direct lending but will continue with wholesale
loans to Financial Intermediaries and with Credit Guarantees.
• Establishing national presence through regional, branch and
satellite offices
• SEFA Helpline 086 00 54852 or [email protected]
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Conclusion
• Policies are robust
• Strong, well managed and properly resourced
institutions (finance and non-finance)
• Interventions that are focused (incubation; a
gazelle’s strategy?)
• Link into supply chains and procurement
(public and private sector)
• 30 day payment is critical
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